How to Report a Fair Market Valuation for Your Self-Directed IRA
Estimated reading time: 3 minutes 40 seconds
Every year, the IRS requires a report of the value of your IRA assets. This is not a special addendum to self-directed retirement accounts and is required of all IRAs. But the process is different from reporting the value of non-monetary assets like stocks, bonds, and CDs.This is where the fair market valuation (FMV) comes in. It’s used to assign or change the value of an asset in a self-directed IRA.
A fair market value is an estimate of the market value of an asset, based on what a knowledgeable, willing, and unpressured buyer would likely pay to a knowledgeable, willing, and unpressured seller.
What the IRS requires:
The Internal Revenue Service requires Entrust to provide the FMV of our clients’ accounts as of Dec. 31 of each year. The valuation is paid for by the IRA. If your account does not have sufficient un-directed cash to cover the cost, you will have to add cash by making an annual contribution, transfer, or roll over funds from another custodian to pay for the valuation. The FMV Form must be provided to Entrust on a yearly basis – due by Jan. 31 – to ensure proper tax reporting. An FMV is also required when you’re taking an in-kind asset distribution, converting an asset and re-characterizing an asset.
Who can perform valuations:
The valuation must be accurate, especially if the amount is used for taxation or is involved in calculating amounts such as a Required Minimum Distribution. A qualified, independent third party should perform the valuation and then complete the Fair Market Valuation Form. This person can be a certified appraiser, a licensed real estate professional (in the case of real estate assets), or a knowledgeable professional such as a CPA, attorney, or financial planner. It’s important that this person is not personally involved in any of your assets or has anything other than a business relationship with you, the client.
Forms and how to use them:
The Fair Market Valuation Form must be signed and dated by both the client and the valuator, if an appraisal is not required. If the appraisal is required, the appraiser does not have to sign the FMV Form. The appraisal report is sufficient.
A separate FMV Form must be completed for each asset held in your account.
The form, as a final step, needs to be sent to Entrust with supporting documents, which may include:
For real estate:
- Real estate fair market value analysis, more commonly known as a comparative market analysis (CMA). This is a detailed report examining the homes currently on the market, under contract, recently sold and recently expired, withdrawn or canceled to determine what a property is worth in the current market.
What to do with "lost" investments:
For investments that you may have deemed "worthless" or "lost", contact Entrust for questions specific to your account. If these assets are to be removed from the account, indicate the status and value on the Fair Market Valuation Form and sign it yourself. You will not need a third-party professional to perform the valuation. In order to remove the real estate assets from your account, Entrust requires that specific types of documentation be included, such as:
- Tax Form 1099-C (Cancellation of Debt).
- Deed in lieu of Foreclosure or a copy of the recorded Trustee’s Deed (for defaulted mortgage).
- County’s recorded Tax Deed (for defaulted property taxes).
- A “cease and desist order” from an entity such as the SEC or a similar state agency.
- After we receive the form and supporting documentation, we’ll complete the rest of the work and mail you a Form 5498 with the same FMV information for your account. This form is also used to report contributions, re-characterizations, conversions, and rollovers made for the prior tax year, including any of these transactions made between January 1 of the prior year and April 15; the tax filing deadline. Form 5498 is a document for your records. The form is for you to review, to make sure that everything is reported correctly. The form will also notify you if you are obligated to start taking Required Minimum Distributions (RMDs).
Where to send your forms:
Once the FMV Form is completed and you have the supporting documentation, you can submit it to us by fax, email or snail mail.
By fax: 510-587-0960
By email: Forms@TheEntrustGroup.com
By mail: The Entrust Group; 555 12th Street, Suite 1250; Oakland, CA 94607
Click here to visit our FMV page on the Entrust website for further information about submitting your FMV forms.
If you find a discrepancy, please contact us immediately. We will also send a copy of this form to the IRS.